Alec Rasizade, Senior associate, Historical Research Center in Washington (U.S.A.)

After the demise of the U.S.S.R., Azerbaijan was relegated to the category of a third-world nation. The country is currently in the process of so-called “transition period” during which it has actually moved backward rather than forward since the beginning of reforms. This is the principal outcome of its first decade of independence.

Social Metamorphoses and the “Bespredel” of “New Azeris”

Although Azerbaijan is now a typical third-world nation, its people perceive their perils in a way different from other backward societies, raising many unexpected obstructions for American “globalization” strategy. The basic psychological problem we are doomed to face in Azerbaijan for years ahead is that, due to socialist legacy, wide segments of population are well educated and have seen much better days of a welfare state. It is not easy to persuade them now toward the benefits of “free society” and foreign investment.

The bulk of the population, those millions of people who are not employed in the oil industry, do not know any English or do not have the youth and the right look for work in a shop that serves Westerners, cannot participate in this new economy driven by foreign investment and foreign tastes. As most Azeris live below the poverty line, graft infects the nation, from the traffic cops who demand bribes to relatives of the president widely believed to be fleecing the state, to government officials who have built themselves palaces with fountains while ostensibly living on paltry civil service wages.

More troubling is the drastic decline in the ability of the government to maintain even minimal levels of public services and social welfare protection, not to mention the kinds of benefits that the pre-independence population enjoyed. Public education has broken down, health care has deteriorated, meager pensions have gone unpaid, and a relatively egalitarian social structure has been destroyed. In one of the most fundamental indications of decline, expenditures on food have sharply risen above 70% of a family income on average, compared with below 30% before 1991.1

Ironically, in the “energy-rich” Azerbaijan, energy shortages have become worse, affecting homes, schools, hospitals and workshops. Water supply is severely rationed. Only 10% of Azeri cities have a sewage system. Worse diets and sanitation have helped speed the deterioration in public health with the relapse of epidemics long forgotten during the Soviet era.

Before independence, Azerbaijan was rightfully proud of its extensive educational system. Approximately 90% of the adult population had at least secondary and more than 30% had college education. Today, Azeri officials privately estimate that one-third of all school-age children do not attend classes, helping their parents to earn for living. Given the government’s minimal expenditure on education, the disincentives of unemployment and corruption, poorly paid teachers, decrepit and unheated schools, the system has broken down completely.

If, as the United Nations Development Program (UNDP) suggests, the education, new training and information technology are the sources of growth, Azerbaijan’s prospects are appalling. The higher educational system is equally chaotic with about 150 unregulated private institutions. Patronage and bribery ensure that only those with connections matriculate in the better colleges abroad through several Western government-paid programs. The quality of instruction, student attendance and the curricula at Azeri universities are extremely low and obsolete.

In his speech marking the eleventh anniversary of Azeri independence, president Aliev trumpeted Azerbaijan’s economic achievements, citing that the GDP over the last six years has increased by 68%.2 Of course, since independence, Azerbaijan has suffered such an economic collapse that even marginal increases in economic activity can generate eye-catching GDP growth. However, the recent report published by the EBRD has estimated that the GDP of Azerbaijan in 2001 constituted only 44% of the GDP of Azerbaijan S.S.R. in 1991.3

According to a World Bank assessment, 78% of Azerbaijan’s population live on less than one dollar a day; the average income per capita (including the “new Azeris”) in 2000 was $618 or $1.7 a day.4 A UNDP report indicates an almost 80-percent poverty level of Azeri citizenry, marking one of the lowest standards of living in Europe, lower than in Bosnia, Albania, Armenia, and ahead only of Georgia and Moldova, at the time when stores are brimming with free-market abundance in anticipation of the promised oil boom.5

The economic disaster in Azerbaijan is greater than in the worst years of the Great Depression in the U.S.A. The gravity of human deprivation is exemplified by the fates of Azerbaijan’s second largest city of Ganja where, out of the total population of 300,000, only about 18,000 inhabitants officially have a job.6

The minimum monthly wage in Azerbaijan is 27,500 manat ($5.5). Laborers, if they find a job, are commonly paid 100,000 manat ($20) a month. Average monthly salary is 250,000 manat ($50). Teachers are paid 220,000 manat ($44). In contrast, administrative assistants in foreign non-profit organizations earn about $100, and those who work for profit-making foreign companies make more. The average monthly state pension is 73,000 manat ($15).7

The contrast of prices to these wages is distressing. In the new restaurants, a pizza costs 10,000 manat, a fish or meat entree can cost 15-20,000. One glass of beer, local or foreign, will cost 5,000. A hardback book can cost 25-50,000, and a paperback is 5-10,000. Newspapers are sold for 1,000 manat. Most people do not have cars. They can afford the jitney bus (which has replaced all regular city buses), costing 1,000 one way, or can buy the family’s daily bread costing 1,000 manat for a loaf. They can afford food sold by villagers at the farmers’ market or on street corners, but are effectively excluded from the new supermarkets with their expensive vast array of goods.

Where is the oil-export revenue? Reports of presidential family, members of “the clan” and inner circle stashing away millions of petrodollars into personal foreign bank accounts are regularly released by international watchdog groups as well as the opposition press. There, not in Baku, is the repository of the many “signing bonuses,” “gifts” and “fees” to facilitate business operations, as well as of the outright bribes and kickbacks.

But the general public sees little of this. What is obvious to the people of Baku is the conspicuous consumption by the “new Azeris:” expensive clothes and casino gambling,8 fancy cars and opulent villas with artificial waterfalls (while the water supply to general public is limited to 2-3 hours a day), outrageous tuition paid by the elite for their offspring’s private education abroad. The Mercedes and BMWs are the ultimate status symbol. Those who drive them pay little attention and never yield not only to pedestrians, but to traffic red lights as well, and park their vehicles on sidewalks blocking the fearful pedestrians in full sight of the indifferent police.

The whole picture of social inequality and blunt lawlessness is aptly described by Bakuvians with the Russian expression “bespredel” (unrestricted iniquity, pandemonium). Azerbaijan is not merely an autocratic state, it is a de facto oligarchy (or, strictly speaking, plutocracy) of the rich protected by an authoritarian regime. Remarkably, there is little of the anger or resentment one might expect. There is only resignation and sadness. “Things are terrible,” people say, then add, “we’ll have to see what happens.”

In these conditions, it is not surprising that Azerbaijan’s population is fleeing their independent motherland physically and abandoning it mentally, fairy tales of oil-boom prosperity notwithstanding. According to the 1999 census, Azerbaijan’s population currently numbers eight million. Russian researcher A. Arsenyev has claimed that the official results were fabricated, and the country’s current population cannot possibly exceed four million.9 Indeed, the leadership of Azerbaijan has a vested interest in downplaying the extent of the outmigration and the social discontent it implies.

The previous U.S.S.R. census conducted in 1989 had counted the population of Azerbaijan at seven million. In the course of Nagorno-Karabakh conflict of 1988-1994, the entire Armenian population of Azerbaijan, numbering about half a million, were driven out. A similar number of Russians, Jews and others left in the early 1990s. Dr. Arsenyev concludes that as a result of the flight of nonindigenous population, Azerbaijan lost no less than 1.2 million people.

But in addition, following the radiant “Deal of the Century” signed in 1994, which has pledged billions of dollars in foreign investment, millions of native Azeris have also left their country, moving mainly to Russia and Turkey. According to Russian statistics, the number of Azeris resident in Russia has reached 2.5 million. Specifically, the Azeri population in Moscow and its vicinity is now 1.2 million, compared with 21,000 in 1989. The Russian scholar estimates total emigration of Azeris in recent years at no less than three million. He thus deduces that, allowing for modest natural increase, Azerbaijan’s population has shrunk by half during the decade of independence.

Leaders of opposition parties charged the government with inflating the census figures to conceal this loss of men and, in smaller numbers, women (who prostitute themselves in the Persian Gulf emirates). Young men starting around age 20 are fleeing the republic. There are no official statistics on this problem since the government denies it exists. But everyone has a story of a relative or acquaintance working in Russia or Turkey, and fewer in Europe or America. They send money home (about $2 billion annually, twice the size of state budget)10 when they can, but have no plans to return until “things get better.” Privately, intellectuals worry about the future of Azeris as a nation: “The women are alone in the countryside; there are no men in some villages.”11

It is paradoxical to watch how, instead of moving away from their former colonial master after gaining national independence, millions of Azeris are moving now into Russia, voting with their feet for economic reintegration with the power which their leaders are still blaming for all their perils and for conspiracy to undermine their independence. Among them are thousands of pauperized and disillusioned intellectuals whom I saw ten years ago leading crowds and shouting anti-Russian slogans in central squares of Baku and denouncing in firebrand speeches the very Russia where they today seek refuge and relief.

Even more ironic is to observe by contrast the dramatic transformation of their antagonists (and our new “friends”)—the formerly pro-Moscow local communist honchos and the omnipresent KGB types, who are nowadays mostly successful businessmen engaged in the “global economy.” Their leaders are calling for the expansion of NATO to cover Transcaucasia against the “Russian imperialism” in almost the same clichés which they had been using a decade ago to denounce the “American imperialism.”

Heydar Aliev: “L’Etat, c’est moi!”

Our aging Indispensable Man in Baku, Heydar Aliev, who has failed to deliver on his fabulous promises to create, in his own words, a “Second Kuwait around Baku,”12 essentially runs the country as his private syndicate blandished by luminaries and supplicants from abroad. Political power often tends to increase the longer it is held. Aliev has been Azerbaijan’s supreme ruler for the last 33 years since 1969, with a six-year break in 1987-1993.

After the death of Brezhnev in 1982, the new Soviet leader Andropov made Aliev a Politburo member in Moscow, from where he was dismissed by Gorbachev in 1987. Some Politburo memoirists claim that the first Armenian pogroms in Sumgait and Baku in 1988 reflected this power struggle in the Kremlin and were orchestrated by Aliev’s old cadre hoping to restore his leadership in Azerbaijan instead of Gorbachev’s appointee A.R. Vezirov, who was “too honest for the organized corruption” in the republic.13

According to Aliev himself, he will again run for the presidency in 2003, when he turns 80 years old (in a country where average life expectancy is 63 years). “I have held the post of the president of Azerbaijan for nine years, and God willing, I will hold it for a long time,” said Aliev, speaking in his native town of Nakhichevan.14 Political maneuvering within both the government and opposition blocs, however, is centered on one issue—the succession to Heydar Aliev. Given his age and declining health (he underwent heart surgery in 1999 in Cleveland), it is not believed that he will run again in 2003. Instead, his main concern seems to be to pave the way for his son Ilham to succeed him, something that has been discussed for several years.

As part of a careful process to legitimize him as the heir to the presidency, president Aliev proposed 39 separate amendments to the Constitution, and held a referendum on the proposed changes in August 2002. The government announced that 97% of voters, who participated in the referendum, endorsed those changes. Opposition politicians claimed that the authorities resorted to massive manipulation of the referendum outcome.

The most important amendments provide for transfer of presidential duties to the prime minister if the president dies, steps down, or is incapacitated. (Under the 1995 constitution, in such circumstances the president’s duties devolved on the parliament speaker.) The minimum number of votes a candidate must receive in the first round to be elected president is lowered from two-thirds of all votes cast to 50 percent plus one vote.

Local politicians unanimously construed that the rationale for the amendments is to enable Aliev to name his son as prime minister, a position in which he can succeed him as president. Under the constitution, it is the president who is empowered to appoint the premier, who is answerable to him, not to the legislature. Naming Ilham Aliev as prime minister would be one way to allow him to demonstrate his efficiency as an economic manager, at a time when increasing oil revenues could bring the long-hoped-for economic upswing.

It appears that the Alievs have gained a tacit endorsement of the Washington political establishment, where Aliev-junior pays regular “charm” calls. During his last visitation, as an American reporter noted, “He was guest of honor at a fancy dinner that pulled in [secretary of energy] Spencer Abraham, [undersecretary of state] Richard Armitage and [vice president] Dick Cheney. When I caught up with Mr. Aliev, he had lunched earlier that day with a group of high-profile has-beens including [former secretary of state] Madeleine Albright and [former national security advisor] Brent Scowcroft.”15

But other observers have pointed to another innovation, namely the provision that the prime minister must not necessarily be a citizen of Azerbaijan, and suggested that this change was made in order to install the Russian oil tycoon Vagit Alekperov (an ethnic Azeri) as Azerbaijan’s prime minister, and that Alekperov would work in tandem with Ilham Aliev as president as the latter’s éminence grise. But by the same token, the provision allowing foreign citizens to serve as prime minister could become a liability. If, for example, Heydar Aliev were to die suddenly, pro-Russian forces might seek to take advantage of the resulting chaos to engineer the return to Baku of either the former president Ayaz Mutalibov, or the former KGB chairman Vagif Huseinov, both of whom have acquired Russian passports during their respective exiles in Moscow.

The country’s political opposition is plagued by infighting, which has inhibited a coordinated pressure on the government. Voters get further disoriented by the practice of Azeri authorities to establish alternative eponymous “parties” under their own control to neutralize the “real” opposition parties, using renegade members of political forces against whom these counterbalance parties are being established. As a result, presently two “Islamic,” three “Popular Front,” four “Democratic,” and five “Communist” parties are functioning in Azerbaijan.

Most alarming is the widespread apathy and general aversion to politics in Azeri society. For an overwhelming majority of the population, stability and survival are now more urgent concerns than the abstract concepts of democracy and liberation of Nagorno-Karabakh, which are generally seen as having brought nothing but lawlessness, war and poverty. This is the real political climate in which the Alievs hope to smoothly pass the power from father to son despite the opposition’s vitriol.

A significant number of people in Azerbaijan depend on patronage from the Aliev regime for their privileged position and have a vested interest in retaining the regime in power in order to preserve their illegally privatized property and illicit incomes. That is the main reason for Ilham’s strong support within the state structures and among the so-called “new Azeris.” They are largely conservative and profit from the status quo. The “new Azeris” will not lead the charge for reform, and although they compete and conflict, they have created what Italians call “garantismo,” or an agreement by the major stakeholders of the regime to stick to the rules of self-preservation.

Institutionalized Corruption

“Never ask a ‘new Azeri’ where he made his first million,” advised me an old friend at the foreign ministry in Baku where I traveled in search of materials. Ten years of chaos allowed many opportunists to get rich quick. Some did so honestly; but most cheated and swindled fellow citizens, bribed and purloined from the state or small investors. That era is coming to an end. Some former officials and “businessmen” who lined up their pockets are now in jail or exile, but many more of those formerly on the take are walking free. In this new brave world of Azerbaijan, why question too closely how some people, many of whom, the conflict of their official and commercial interests notwithstanding, are now ministers, ambassadors, generals, judges, party leaders, members of parliament and other pillars of Azeri society, made their early fortunes?

Illegal business has infiltrated all levels of government and is inseparable from the state. The state has become privatized by clientalistic networks; it, along with the legislature and the political opposition, has become a means for realizing private interests. When corruption persists at the top, it percolates throughout the society: people expect to pay and receive bribes, and that culture of corruption becomes institutionalized. Azeris are fond of saying that corruption is so endemic that the country would come to a stop without it.

Neither the Russian, nor Western understanding of corruption apply to the Azeri pattern of kleptocracy: it is not a chaotic profiteering, where anybody can grab anything, for it is tightly controlled. The institutionalization of corruption has evolved, as I found out in Azerbaijan, into two intertwined systems: (1) the distribution of bribes through the chain of superiors; (2) the buying of lucrative positions through payments to top officials.

(1) For example, a customs controller ordinarily gives 75% of his illicit profits to higher executives. His supervisor keeps 25% and passes the rest on to the next level, and so forth. The border guardsmen extort their cut directly from local smugglers in return for turning a blind eye. Captains at each of the border crossing points have to pay a flat monthly “tribute” of $7,000 to their top brass in Baku who have appointed them.16

Shopkeepers pay regular cuts to local police “for protection” and payoffs to all inspecting officials, from fire marshals to tax collectors. Such a system leaves no room for Russian-style racketeering as it is substituted by officials performing the same function. In his excellent report from Baku about the oil rush and total corruption there, American journalist J. Goldberg asked average Azeris a simple question: why, in spite of all that graft, there was no Mafia in Azerbaijan? A local businessman explained: “When corruption comes from the state, there is no need for Mafia, the state itself is the Mafia.”17

(2) Almost all government jobs in Azerbaijan come with an unwritten price tag. The higher the official’s potential for bribe taking, the higher the price will be. Positions in law enforcement bodies like the interior ministry, prosecutor’s office, and the judicial, tax and customs services, as well as most national and local executive positions, are all considered desirably ripe with possibilities for graft. If the head of customs directorate K. Geydarov has allegedly paid $3 million for his appointment, he has done so with an intention to double or triple the original “investment” through systemic graft and extortion in his office. (Which brings us back to the chain system No. 1 above.)18

When the demoted chief of Baku international airport police decided to carry overseas several suitcases with the cash of his “life savings,” he simply paid $800,000 to the new chief of airport police. In another case involving the Azeri law enforcement officers, a fugitive banker who fled the country with all deposits of his investors, paid off in a Persian Gulf emirate $11 million to the squad of Azeri agents that arrived on a special flight to arrest him, and his case was eventually closed. On the very top of Azerbaijan’s power pyramid (which, according to general public belief, is the final destination of all these “tributes”) in only one widely quoted case, the chief of presidential staff Ramiz Mehtiev allegedly received $6 million for exoneration of a group of rural bosses charged with a large-scale cotton-export fraud.19

Several international surveys have shown that Azerbaijan has become one of the most corrupt nations in the world. Corruption level indices rendered for the last years by both Transparency International organization based in Berlin and Control Risks Group based in London have consistently ranked Azerbaijan as the third most corrupt country in the world after Cameroon and Angola, and first among the former Soviet republics.20

The Azeri press boasts today of some of the “richest men in Europe” whose sources of self-enrichment in this impoverished country remain inconceivable. The bulk of personal lucre is drawn from the access to national oil-export revenue and illegal dividends from privatization of state property. To understand the depth of despoliation, look no further than the ex-speaker of parliament Rasul Guliev, who allegedly depredated $76 million through the illegal proceeds in a state-owned oil refinery at his disposal, before jetting into a comfortable exile in New York in 1997.21

Another illustration for government-level embezzlement and the degree of impunity was presented by former foreign minister Hasan Hasanov who misappropriated a $10 million Turkish credit meant for the establishment of Azeri legations abroad, and used the funds to build his privately owned hotel and casino in Baku. After the criminal investigation directed by prime minister Artur Rasizade in 1998, the minister was merely sacked, but remained a member of parliament, and that was regarded as enough by president Aliev.

The Legend of Caspian Oil Boom

The subject of oil rush is inescapable when anyone talks about Azerbaijan. Our analysts and newsmen have shaped the country’s profile in one stereotype formula: “energy-rich former Soviet republic on the Caspian Sea,” which pops up importunately in every story. At the expense of other vital issues, they continue to dwell on minor details of Caspian oil contracts and proposed routes for export pipelines, closely following every twist in negotiations around them and superficially linking to petroleum output and even to a traversing pipeline the prosperity of entire nations in the Caucasus (such as Georgia), shortchanging the complexity of the region’s woes.

America’s honeymoon decade with Azerbaijan, induced by the anticipated oil bonanza, finished with the end of the 20th century when the iridescent hydrocarbon bubble ballooned by sensationalist media burst with confusion. Instead of the politically bloated appraisal of 200 billion barrels in Caspian oil reserves valued at 4 trillion dollars, exuberantly postulated for the past decade by the Department of State to entice American investors into the region and justify its own strategy there,22 we are talking today about only 18 billion to 34 billion potential barrels of oil reckoned by another government agency, the U.S. Energy Information Administration, 14 billion of which are estimated under the Kazakhstan section of the sea and only about 5 billion in the Azerbaijan section.23

Unfortunately, the oil-fixated approach to Azerbaijan is still remarkably quaint and naive. The media hype machine is still in full swing, being at a wide variance with the actual reserves, though the numbers are beginning to come down. For example, Newsweek magazine was still claiming in 2002: “It is apparently beyond the limits of journalistic restraint to tell the story of Caspian oil as anything but a breathless spy thriller... The Caspian Basin, at a conservative estimate, contains about 70 billion barrels of oil.”24

The “Deal of the Century” concessions, first of which was signed in 1994 at an ostentatious ceremony in Baku, began to crumble last year when three of the 21 international contracts, signed during the oil rush of 1994-1998, were terminated after their exploratory wells failed to yield commercially viable quantities of oil or gas. Then the fourth company, Exxon-Mobil, announced that in 2003 it will end its agreement with Azerbaijan to develop the offshore Caspian oil fields.25 That $2 billion project was signed in 1997. The Russian oil giant LUKoil became the fifth to announce selling its shares in all Azerbaijan consortia, including its 10-percent stake in the 1994 first and largest consortium called Azerbaijan International Operating Company (AIOC).26

Of the remaining 16 projects, only five are actually in the works. Of the pledged $42 billion, no more than $8 billion was invested in Azerbaijan in the past decade, 85% of which has gone directly to the oil sector.27 By contrast, over the same period, the “energy-poor” Hungary attracted $20 billion in diversified foreign investment. The “new Azeris” meanwhile have managed to siphon off into private investments in Turkey alone about $800 million, not to mention other countries, pleading at the same time for foreign aid and investment into their homeland.28

Of the five working international consortia, only one, the AIOC led by British Petroleum, is currently producing considerable amount of crude oil, not only incomparable with the Persian Gulf levels, but even not justifying the construction of a new main export pipeline. Such major companies operating in Azerbaijan and Kazakhstan as Exxon-Mobil, Chevron-Texaco and LUKoil had been asked but declined to join the Baku-Ceyhan (Turkey) pipeline project so insistently promoted by the U.S. and local governments.

After a decade of reveling in a much-publicized exuberance, questions are now being asked about the true extent of the Caspian reserves around Baku. First question is why the U.S.S.R. government, after 100 years of intensive depletion, shifted its emphasis from the Caspian Sea to the permafrost oil fields of Siberia? It is unlikely that Soviet engineers were unequal to the problems of extracting oil from the deep Caspian deposits: in fact, they were pioneers in offshore extraction beginning with the 1947 Neft Dashlary oil rigs constructed in the Caspian Sea. Long-term surveys conducted by the U.S.S.R. petroleum research institutes examined the development of deep-water fields discovered by Soviet geologists, but proposals were always rejected on the grounds of poor potential returns and the high cost of extraction.

The combined Caspian potential dwarfs by comparison with the reserves of Saudi Arabia, which total 262 billion barrels, and Iraq’s 112 billion barrels. Figures released by the AIOC predict that its peak production will reach 500,000 barrels per day (bpd) by 2005 (25 million tons a year) from the current level of 100,000 bpd.29 There is also a prospect of collapsing world oil prices, once the U.N. trade sanctions against Baghdad are removed with the fall of Saddam regime there, and Western investment begins to pour into the neglected Iraqi oil sector. According to an estimate by the Center for Strategic and International Studies in Washington, a $6 fall in the price of a barrel of oil would slash Azeri oil revenue in half. If the price fell to $13 a barrel, most Caspian oil consortia would no longer be profitable.30

All post-Soviet Western geological explorations have as yet failed to find sufficiently large new deposits in the Caspian, except for the Kashagan oil field in Kazakhstan. Whatever the final size of reserves, it is now clear that much of the talk of Caspian oil was a spectacular bluff. The litmus test has been the reluctance to build the controversial new main export pipeline. Studies by two independent research groups in Washington have calculated that the Baku-Ceyhan pipeline would need $200 million per year in subsidies from the U.S. government to remain viable.31

After eight years of negotiations, at another ostentatious ceremony near Baku, the presidents of Azerbaijan, Georgia and Turkey broke finally ground for the construction of Baku-Tbilisi-Ceyhan “pipeline to prosperity” on 18 September, 2002. This 1,730-kilometer line is projected to have an annual capacity of 50 million metric tons of oil, whereas Azerbaijan officially produces only about 15 million tons a year: 9 million by the SOCAR, 5 million by the AIOC, and the rest by other consortia. Even AIOC’s own projections for its peak production level come short of the minimum throughput of 1 million bpd needed for financial feasibility of this $3 billion project.

The Rationale for Sustaining the Caspian Mythology

If the Caspian oil reserves are not so extensive, why is it so essential for the U.S.A. to be there?

The first reason is political. In our “Silk Road Strategy,” the Caucasus represents an important geopolitical isthmus, linking the Black and Caspian Seas and providing Central Asia with a “silk road”. Furthermore, Washington is trying to limit Russia’s influence in the region, while at the same time restricting the number of potential allies for Iran. Another side of this “strategy,” pertaining to the presumed economic significance of the region, has become equally absurd since the 16th century when it lost its value as part of the Great Silk Road (transcontinental trade route that linked China to the Mediterranean for 1500 years) due to the great maritime explorations and the fact that the cheapest way to ship goods between Europe and Asia is by water, not land. Remaining since then on the periphery of “global economy,” Transcaucasia does not constitute by itself an area of vital national interest for the U.S.A. For instance, the combined GDP of Armenia, Georgia and Azerbaijan, at around $10 billion, is minuscule in international terms compared with British Petroleum’s turnover of $148 billion for the year 2000.32As for the government of Azerbaijan, it needs Western patrons in its confrontation with Armenia and fortitude vis-à-vis the overpowering Iran and Russia,—so why dissuade the West by confessing that Azerbaijan’s only alleged attraction is a deceit? In addition, the Azeri regime is fully aware of the obvious truism in international politics: the greater are oil reserves—the more tolerant are Western governments in overlooking a poor human rights record of any petroleum-based regime. A regime with less significant oil production provokes more international scrutiny into the status of local democracy.

Secondly, the interest of international oil companies in sustaining the Caspian oil phantom can be easily explained: they are motivated by profit. This is the very essence of Western business investment in Azerbaijan. By participating in high-profile Caspian projects and issuing rosy reports of great resources, companies improve their stock image, generating an instant profit without pumping a single barrel of oil. In fact, to begin seriously extracting oil would be counter-productive given the danger that the true extent of oil reserves would then be exposed. The affair of Viktor Kozeny, a rogue Czech businessman, has brilliantly illuminated this ethos.33

For $6.3 million, Kozeny obtained 25% of the 7.5 million vouchers issued by the Azeri government in 1997 for privatization of state property amongst its citizens. Then he raised $450 million from an American investment group, which includes such dignitaries as the vaunted Wall Street hedge fund manager Leon Cooperman and former U.S. Senate majority leader George Mitchell, with the intention of participating in the anticipated privatization of Azerbaijan’s national oil company SOCAR. The Azeri leadership subsequently ruled that SOCAR should remain state-owned.

Investors now say that they took part in the buying of vouchers after Kozeny’s assurances that the Azeri government intended to privatize SOCAR by the end of 1998. Azeri officials deny that any promises were made. The would-be American investors are now suing Heydar Aliev, his son Ilham and three Azeri privatization officials, in London and New York for $100 million. Kozeny has claimed in the court that Azeri president personally demanded hefty kickbacks in exchange for his favorable decision, and insisted that he gave $83 million to Heydar and Ilham Alievs, and three other top Azeri officials.34

Third motive: why do the Azeri authorities cheat on the contracts they are only too willing to sign, and how do they benefit from that? Aside from the tumid sense of self-importance that the Caspian oil bestows upon them, their objective is entirely pragmatic: the more foreign investment—the easier to perpetuate autocratic rule and keep popular discontent at bay with tales of a “Second Kuwait” prosperity lying ahead, not to mention the Western corporate slush funds and huge contract kickbacks for the ruling elite which do not even enter the country and are directly deposited to personal bank accounts abroad. In a retort to estimates by his Azeri counterpart Aliev of the size of Azerbaijan’s Caspian oil deposits, Armenian president Kocharian famously remarked at the World Economic Forum in Davos: “Is there any water in the Caspian, or is it only oil?”35

Finally, as we live in the age and under the influence of mass media cheer-leaders, let us point out the articulate lobby that has emerged and cultivated since 1991 the legend of Caspian bonanza in collaboration with our sensationalist press. It comprises a welter of numerous Washington think-tanks, law firms, investment bankers (such as Kozeny), trade associations, pipeline construction companies, effusive journalists, television talking heads, big oil-controlled politicians, aspiring academics, retired diplomats who “consult” oil corporations, hungry local officials and opposition leaders in Baku, our agile expatriates there and unemployed Caucasian émigrés here,—they all profess in unison that Azerbaijan is sitting on an “enormous” sea of oil as they all are united in the desire to slice off pecuniary pieces from the promoted huge investment pie in the form of research funding, construction contracts, personal assignments and consulting fees.36

1 See: Monitor, monthly analytical survey (Baku), March 2002, p. 8.
2 See: Azerbaycan (Baku), 18 October, 2002.
3 See: The Transition Report: November 2001, EBRD, London, 2001, p. 36.
4 See: Social Assessments for Better Development: Case Studies from Albania, Azerbaijan and Moldova, World Bank, Washington, 2002, p. 36.
5 See: United Nations Development Program. Human Development under Transition: Annual National Reports, United Nations, New York, 2001, p. 87.
6 See: Yeni Musavat (Baku), 11 January, 2002.
7 See: Azerbaijan, weekly analytical-information bulletin (Baku), No. 23, 6 June, 2002.
8 The first son Ilham Aliev alone lost $6 million in his 1996-1998 gambling season (see: Turkish Daily News (Ankara), 25 August, 1999).
9 See: Nezavisimaia gazeta (Moscow), 1 December, 1999.
10 This amount equates the remittances sent home from France in 2000 by Moroccan workers, which further typifies Azerbaijan as a third-world country (see: The Economist (London), 2 November, 2002, p.11).
11 Author’s interview at the National Academy of Sciences in Baku, January 2002.
12 Cumhuriyet (Istanbul), 1 July, 1993.
13 N.I. Ryzhkov, Perestroika: Istoria predatel’stv, Moscow, 1992, pp. 204-208; E.K. Ligachev, Kak eto bylo, Novosibirsk, 1995, pp. 183-184.
14 Quoted from: ITAR-TASS, 12 April, 2002 [].
15 C. Rosett, “Potentate Jr.: An Interview with Azerbaijan’s Dictator-in-training,” Wall Street Journal (New York), 6 November, 2002.
16 There is, naturally, no documentary proof, but this is the practice verbally described to me by many a dismissed officer. One of my relatives, a high-ranking border guard officer, was killed in a highway “traffic accident” after refusing to whack up with his superiors.
17 J. Goldberg, “Getting Crude in Baku,” New York Times Magazine, 4 October, 1998, p. 69.
18 Documentary evidence compiled by the national security ministry investigations of this and the following instances of government corruption adduced in this article, were presented by the ministry’s renegade officer Ramin Nagiev in his confessions in the online publication Virtual’ny Monitor [].
19 Ibidem.
20 See: 2002 Corruption Perceptions Index []; Control Risks Group’s Global Corruption Survey 2002 [].
21 The government investigation report published in the newspaper Bakinskiy Rabochiy on 26 August, 2000, claimed that Mr. Guliev is not a political opponent of president Aliev but a convicted criminal who robbed his own country and thereby has managed to fund his opposition activities, and reproved the governments of “those countries that criticize corruption in Azerbaijan, but refuse to comply with repeated requests for his extradition.”
22 Testimony and prepared statements of U.S. State Department officials Marc Grossman and Stephen Sestanovich, in: Implementation of U.S. Policy on Caspian Sea Oil Exports, U.S. Senate Committee on Foreign Relations, 8 July, 1998, GPO, Washington, 1998, pp. 9-24.
23 United States Energy Information Administration, “Caspian Sea Region” [http://www.eia.doe/gov].
24 O. Matthews, “The Next Move Is Check,” Newsweek, 8 April, 2002, pp. 44-45.
25 See: Turan Information Agency (Baku), 5 June, 2002 [].
26 See: Agence France-Presse, 22 October, 2002 [].
27 See: The Economist (London), 26 October, 2002, p. 47.
28 See: Turkish Daily News, 23 November, 2001.
29 See: Oil and Gas Journal (Houston), 24 October, 2001, p. 34.
30 See: Washington Post, 22 November, 2002.
31 See: S. Kober, The Great Game, Round 2: Washington’s Misguided Support for the Baku-Ceyhan Oil Pipeline, Cato Institute publication No. 63, Washington, 2000, p. 14; An Agenda for Renewal: U.S.-Russian Relations. Report by the Russian and Eurasian Program of the Carnegie Endowment for International Peace, Washington, 2000, p. 28.
32 Given the limited space for historic validation of this disheartening truth, I would refer the reader to “The (not so) Great Game” by Anatole Lieven in the Winter 1999/2000 issue of the National Interest (Washington), pp. 69-80.
33 See: “The Incredible Half-billion-dollar Azerbaijani Oil Swindle,” Fortune (New York), 6 March 2000, pp. 78-85.
34 See: Yeni Musavat, 29 October, 2002.
35 Le Monde (Paris), 6 February, 2001.
36 For a lineup of former top government officials in the pay of oil corporations, including Lloyd Bentsen, James Baker, John Sununu, Brent Scowcroft, Zbigniew Brzezinski, Richard Armitage (who is now undersecretary of state) and other prominent personalities who chair several U.S.-Azerbaijan lobby groups, see: Washington Post, 6 July, 1997.

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